Entrepreneurs: what are the sources of financing for your growth?

News
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07/02/2017

Without financing, there is no growth: this equation is well-known among companies and entrepreneurs. The trajectory followed by Showroomprivé.com, a flagship of FrenchTech, is an example of the benefits of a successful entrepreneur/investor relationship. David Dayan, co-founder of France's second best flash sales website, shares his story.

Since its creation in 2006, this flash sales website has become one of the greatest digital success stories in France. It was also hailed as such on its stock market listing in October 2015, on the Paris Stock Exchange Eurolist B. In a hardly favourable environment, Showroomprivé.com “convinced investors by its company strategy, the good state of its fundamentals and its ability to deliver the projects presented”, explained David Dayan. Since then, showroomprivé.com has continued on the same course, embarking on the acquisition of Italian company Saldiprivati.

The manager/ capital-development fund duo

In the past, Showroomprivé.com has already shown that it can convince investors in another area: private equity funds. In 2010, it caught the attention of a prestigious US finance company. Under the aegis of this partnership, showroomprivé.com accelerated its international expansion and developed new offerings: delivery within 24 hours, mobile apps, multi-currency website, etc.

"Accel Partners ‘challenged’ us in our strategy and our growth plans, and supported us without ever interfering in the management of the company. This is how we brought about the successful combination of manager and investor."

For this combination to succeed, the relationship has to be well-structured. This is reflected in the shareholder agreement, which governs the rights and obligations of all the parties involved. “In this regard, two clauses call for particular attention: the one relating to governance, and the one relating to exit”, indicated Jean-Robert Bousquet, partner-lawyer and joint head of the Corporate - Mergers/Acquisitions department at the firm CMS Bureau Francis Lefebvre. By its nature, the fund invests in order to divest “one day” - the average investment term is currently evaluated at six years by the French private equity investors’ association AFIC (Association française des investisseurs pour la croissance). “It is usual to set a deadline for exit, to agree on a mandate for a merchant bank to organise the sale process or to plan a stock market listing”, he added. Investors also know how to play the flexibility card.

As well as these traditional liquidity clauses, the fund may grant the management a pre-emptive right, if it is the majority shareholder. Investment funds are pragmatic: they know very well that you don't want to set a company against its management team.Pierre-Yves PoirierDeputy Director, Edmond de Rothschild Investment Partners

Increasingly flexible financing solutions

Showroomprivé.com is different from many other companies because it generates a negative WCR. “We do not face any structural issues on the financing front. On the other hand, in the past, we have considered the opportunity to buy out a competitor of the same size. We therefore looked at all the flexible instruments available on the market”, said David Dayan.

In the area of non-dilutive financing, the scope has become increasingly wide over the last few years.

In the area of non-dilutive financing, the scope has become increasingly wide over the last few years. ”Previously, the only solutions available to companies in terms of long-term financing were banking loans payable in instalments. Today, they are faced with a vast array of flexible solutions, redeemable at maturity. As well as various forms of mezzanine loan (with cash and/or capitalised interest) there are the well-known unitranche loans, which replace all the debts on the balance sheet”, commented Grégory Fradelizi, Head of Financing Advisory Services at Edmond de Rothschild Corporate Finance.

In today's world, it is the financing solutions that are adapted to the company and its growth plans, and not the other way around.Grégory FradeliziHead of Financing Advisory Services, Edmond de Rothschild Corporate Finance

This trend has been sustained by the development of debt funds in the face of traditional banking establishments. “These private debt funds, often based in London and having considerable financial clout, are actively seeking to finance French SMEs. Do not imagine that we are talking here about large facilities: these operators are able to fulfil requirements in the region of €25M”, he added. Although banks and debt funds have been in opposition for a long time, we are now seeing these two families co-existing quite happily in borrowers’ balance sheets. The result? Companies have never enjoyed so much liquidity.

WARNINGThe commentaries and analyses featured in this presentation are for general information purposes only and constitutes neither a product of service recommendation. They shall not under any circumstances be construed as comprising any sort of undertaking or guarantee whatsoever on the part of the Edmond de Rothschild Group or of its subsidiaries, nor a customised investment advice or a general investment recommendation.Any investment is always subject to risk. It is up to each investor to analyse the risk associated with such an investment by listening to the views of expert counsels, namely in order to make sure that it is in line with his/her financial situation and objectives. The Edmond de Rothschild Group is not responsible for any decision to invest, sell or hold a security based on the afore-mentioned commentary and analysis.